The Overnight Report: Calm Before The Storm

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By Greg Peel

The Dow closed up 22 points or 0.1% while the S&P was flat at 1987 and the Nasdaq lost 0.1%.

Yesterday on Bridge Street saw a replication of Friday’s trade in which the ASX200 was down by 20-odd points early but recovered towards the close. Local stocks ignored the nervous fall on Wall Street and looked to Asia, where indices had a solid session. In focus at present is the Chinese stock market, which after years of wallowing appears to have broken up.

If Chinese investors can once again become interested in their own stock market, the pressure will ease on the property market and thus on debt. Watch this space. In terms of the ASX200, the push to 5600 will come down to the earnings season trend, barring any unforeseen developments in the US this week.

Earnings were not as much in focus on Wall Street last night as M&A, on another typical Merger Monday, while the major data release of the session caused concern. Pending home sales fell for the first time in four months, down 1.1% against expectations of a 0.5% gain. Pending sales are down 7.3% year on year.

A choppy housing market brings into question the strength of the US recovery. Interest rates are low and unemployment is falling, which should provide the basis for housing market improvement. The finger has again been pointed at bank lending restrictions which, in typical fashion, were too loose before the GFC and are arguably too strict now. Bankers have never heard of Goldilocks. Janet Yellen has singled out housing as an important factor in Fed policy, and recent data only serve to underscore the likelihood of the Fed remaining looser for longer. But not all FOMC members agree with this policy.

Dallas Fed president Richard Fisher is a known hawk among the relatively dovish FOMC and is not backward in coming forward with his views. Commentators were still surprised last night when an op-ed piece was published in the Wall Street Journal written by Fisher, entitled “The Danger of Too Loose, Too Long”, in which he outlined his concern that the Fed may be suddenly caught out by the US economy and have to move swiftly and detrimentally. His opinion comes as no shock, but the fact a voting member would openly, albeit indirectly, criticise the boss on the eve of a policy meeting is pretty much unheard of.

Usually Fisher and others wait until after the official Fed statement is released before commenting on their own contribution to the meeting and their own opinions. The minutes, once released, do note “dissenters”. But Fisher’s pre-emptive move only adds to the build-up of this particularly decisive economic week in the US which sees Wednesday night’s meeting follow the release of the first estimate of June quarter GDP, and precede Friday’s jobs numbers.

The significance of this week is enough to keep Wall Street on the sidelines for the moment. The Dow opened down 80 points on the weak pending home sales numbers early in the session last night but grafted back during the day to a flattish close. Tonight will likely see another quiet session ahead of Wednesday’s revelations and that will probably be the case on Bridge Street as well.

After a bit of a pre-weekend shift to safety on Friday night, with the Russian spectre overhanging, positions were somewhat reversed last night. The US ten-year bond yield ticked back 2 basis points to 2.49% and gold fell US$3.60 to US$1304.70/oz with the US dollar index steady at 81.00. The Aussie is up 0.1% to US$0.9405.

Nickel continues to consolidate after its stellar run despite many an analyst suggesting the metal has a lot further to go under the shadow of the Indonesian export ban. It was down 2% last night, while copper was steady, aluminium rebounded 0.8% and other metals put on around 1%. Iron ore was steady at US$94.30/t.

The oils remain a bit betwixt and between at the moment, not sure whether to take note of the peak now having been passed in the US summer driving season against lingering concerns over Russia-West tensions and Middle East mayhem. Last night Brent fell US68c to US$107.55/bbl and West Texas fell US40c to US$101.56/bbl.

The SPI Overnight closed down 7 points.

Japan will see retail sales and jobs numbers today as Abe’s inflate-or-die economic policy continues to struggle. House price and consumer confidence data are due in the US.

On the local stock front, quarterly production reports are due from Beach Energy ((BPT)), Evolution Mining ((EVN)) and Perseus Mining ((PRU)) while Alacer Gold ((AQG)) will release its interim profit result.
 

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